Tips for Saving for a Down Payment on a Home
Even though home prices have increased in recent years, owning a home is still possible! As a first-time buyer, you have the option to put down as little as 5% of the purchase price to buy a home. Here are our top tips for making the most of every dollar.
A 5% down payment on a $525,000 home, which was the average price in Canada in October 20191, equals around $26,250.
Know how much you can afford.
- You won’t be as tempted to look at homes outside your price range
- You’ll know how much you need for a down payment and what your mortgage payments might be
Too soon to get pre-approved for a mortgage? Use an online calculator to get a general idea: How much home can I afford?
- Work towards your goal of buying your first home with a First Home Savings Account (FHSA). Now available at RBC, an FHSA is a new registered plan that can help you save for your first home tax-free.
- A TFSA is a great way to save for your down payment because the money you earn from the investments you hold in your TFSA (interest, dividends or capital gains) is not taxed, even when you withdraw it.
Turn saving into a habit.
Put your savings on auto-pilot and grow your money faster by setting up regular (weekly, monthly, etc.), automatic contributions into your TFSA.
- You decide how much to save and how often—weekly, bi-weekly, monthly—it’s up to you
- Contributions are automatically debited from your bank account (at RBC or another financial institution)
- You can change how much you want to save, how often you contribute, and stop or pause your contributions at any time
Borrow from your RRSP.
Do you have a Registered Retirement Savings Plan (RRSP)? If you’re a first-time homebuyer, you may be able to withdraw up to $35,000 for your down payment through the federal government’s RRSP Home Buyer’s Plan.
Here’s a quick overview of the rules and guidelines that apply:
- You can only participate in the program once.
- You can withdraw up to $35,000 from your RRSP ($70,000 per couple).
- The funds must be in your bank account for at least 90 days before you withdraw them.
- You have to repay at least 1/15 of the funds each year, starting two years after you withdraw them.
- You must have a signed agreement to buy or build a qualifying home.
For details, visit canada.ca. You can also talk to an RBC advisor about your unique situation.
Get started—and stay on track—with free tools.
If you’re an RBC client, you’ve also got access to free tools that can get you started with saving and help you stay on track:
- A quick way to start saving for your down payment is with the help of NOMI Find & Save. It’s a digital savings account that learns your transaction patterns, finds extra dollars in your cash flow and automatically moves them to savings. Turn on NOMI Find & Save in the RBC Mobile app.
- MyAdvisor is a digital service that can make saving for a home—and other goals—easier.
MyAdvisor is a digital service that combines interactive planning tools and advice from a live advisor to help you stay on top of your savings goals. It’s exclusive to RBC clients, easy to use and available to you at no extra cost.
- See what you have with more certainty. MyAdvisor shows you how you’re doing with powerful visuals and forecasts of your goals, net worth and cash flow.
- Link outside accounts for a complete picture. Have savings and investments outside of RBC? MyAdvisor lets you quickly link them for an up-to-date look at your money.
- Receive personalized advice. Meet with a live advisor through video chat, by phone or in person to review your savings plan, talk strategy or to simply ask a question.
- Stay on track toward your goal with email alerts. Progress alerts let you know whether you need to adjust the amount you are saving in order to reach your goal.
- Get started in a few simple, hassle-free steps. In minutes, you’ll have an idea of where you stand, see recommendations to help you grow your savings, and be able to book a one-on-one with an advisor.
FAQs on Saving for a Home
This is a great question to be asking before you start home-shopping. Knowing what you can afford will help you set a realistic price range so you can balance home ownership with your lifestyle needs.
In general, mortgage lenders will look at the following factors to determine what you can afford:
- Your annual income and assets (and your spouse/partner’s income and assets, if applicable
- Your credit history/credit score
- Your debt, including car payments, credit card balances, etc.
- The amount of money you plan to put down (your down payment)
Try this quick calculator now to estimate how much home you may be able to afford.
The limit for 2023 is $6,500. However, if you haven’t maxed out your contribution limit (see chart) in any prior years you were eligible for the TFSA, you may be able to contribute more.
|Year||Contribution Limit Per Year|
|2019 - 2022||$6,000|
|2016 - 2018||$5,500|
|2013 - 2014||$5,500|
|2009 - 2012||$5,000|
Unused contribution room can be “carried forward” indefinitely and there is no limit on how much contribution room you can accumulate. For example, if you haven’t contributed anything to a TFSA, your contribution room could be $88,000 for 2023!
The Canada Revenue Agency (CRA) tracks contribution room and reports this amount through the “My Account” function on the CRA web site.
You need a down payment of at least 5% of the home’s purchase price. However, make as large a down payment as you can to lower your interest costs and mortgage payments—and to potentially avoid paying mortgage insurance.
Generally, if your down payment is equal to or more than 20% of the home purchase price, you may qualify for a “conventional” mortgage, which doesn’t require you to purchase mortgage insurance.
If you don’t have 20% to put down, you may qualify for a mortgage but it will need to be insured against default with mortgage insurance3.
If you are a newcomer to Canada and do not have an employment history here, you may qualify for a mortgage if you have a down payment of 35% or more.
In addition to saving at least 5% for your down payment, you should plan to save around 3% of your home’s purchase price to cover closing costs, which are one-time fees associated with the sale of a home. These can include things like the property appraisal fee, notary fees, title insurance and more.
See a list of potential closing costs you may want to plan ahead for.